Masonry Magazine June 1988 Page. 11
Recommended Reading
A Subcontractor's View of
CONSTRUCTION CONTRACTS
By Stanley P. Sklar
A subcontractor often views a construction contract with its general contractor as a "necessary evil" which it must endure and which oftentimes is signed without carefully reading the terms of the contract or if read, with a lack of understanding and a blind faith in the "trust me" comments of the general contractor. Frequently, the project is substantially underway before the subcontract between the subcontractor and the general contractor is executed and the subcontractor is then faced with signing the "standard form" which was referenced in the bidding documents, but which the subcontractor has either never reviewed or was unavailable for review at the time of the bid. It is for these reasons that a subcontractor will often find itself in a position of being owed significant amounts for change orders, extras or contract modifications but is unable to sustain its claim because the terms of the contract have imposed time limitations on claims, or will not permit such a claim as, for example, where there is a "no damage for delay" clause and a substantial portion of the subcontractor's claim is for delay damages.
The purpose of this paper is to highlight those "murder clauses" which should be red flags. The following may be used as a checklist so that subcontractors' counsel can review the general contract looking for these danger signals without the necessity of an elaborate analysis of the contract terms. Of all the participants in the construction process, the subcontractor is the one who is most in need of protection and yet is the one who is most likely to ignore the legal protections which are available to it.
About The Author
Stanley P. Sklar is a director with the law firm of Pretzel & Stouffer, Chartered, One South La Salle Drive, Chicago, IL 60606. He is a member of the ABA committees on Construction Contracts, Real Property Litigation and the Forum Committee on the Construction Industry. Mr. Sklar is the author of numerous construction articles and instructor at the Oakton Community College and Lecturer at Chicago-Kent College of Law. Admitted to bar, 1964, Illinois; U.S. District Court for the Northern District of Illinois, 1965, Trial Bar of U.S. District Court, U.S. Court of Appeals, Seventh Circuit, 1965; United States Supreme Court, 1968.
Some of the more relevant paragraphs follow.
1. The No Lien Contract. This is a contract in which the general contractor has waived its claims for merchanic's liens in advance of construction. Since the mechanic's lien is a derivative claim, all parties claiming by, through or under the general contractor have implicitly waived their respective mechanic's lien rights by reason of the general contractor's waiving its underlying claim for a mechanic's lien under the applicable state law. Most states which permit "no lien" contracts have strict requirements as to recording and notice provisions and it is often in this area that the owner desiring the no lien provision fails to perfect its defense under applicable state law. When confronted with the no lien contract defense, it is usually my position that the general contractor will have to "prove it" in court as I am hopeful that there will be a defect in its perfection requirements just as it is hoping that there is a defect in the subcontractor's lien requirements. It is therefore critical for the subcontractor's counsel to have a working knowledge of its particular mechanic's lien law as the limitations are critical.
2. Incorporation by Reference. This provision incorporates the general contractor's agreement with the owner by reference into the agreement between the general contractor and the subcontractor. Frequently the subcontractor never sees the contract between the owner and the general contractor and often does not even ask to review this agreement. The new AIA contract forms require that the general contractor provide these agreements to the subcontractor. The danger which one faces when dealing with the incorporation by reference provision is that the subcontractor can have numerous "murder" clauses included in the agreement which it has never reviewed, as, for example, the no lien provision, no damage for delay, shifting of design responsibilities to the subcontractor and most importantly, the dispute resolution provisions which will establish time limits for the filing of claims. It is incumbent upon the subcontractor to demand a copy of the agreement between the owner and the general contractor before it signs any agreement with the general contractor. Only in this way can it determine the full extent of its exposure to the restrictive provisions of that agreement.
3. The Contingent Payment Clause. This clause provides that the general contractor is under no ob-
MASONRY-MAY/JUNE, 1988 11